Personal Finance Banking Unit Test

PIN

personal identification number

ATM

Automated Teller machine

Electronic Funds Transfer

end money to someone without handing them cash.  Send it by computer from your account to their account.

EFT (acronym for)

electronic funds transfer

ABA number

identifies a specific bank during electronic transmissions

9 digit code identifying your bank/credit union. Needed for direct deposits, transfers, and bill payments. Found at the bottom fo your checks or online

Direct Deposit

paycheck goes immediately into your bank account - electronically

Balance

How much money you have in your account

Cancelled Check

check has been cashed - receiver has their money

Check

takes $ out of your account - legal piece of paper

Deposit

putting $ into your account

Endorse

receiver of the check must sign the back of the check in order to cash it (get the money)

Interest

$ you receive in payment for keeping your cash in an account

Overdraw

spend more money than you have in your account

Outstanding Check

wrote a check to someone and they have not cashed it.

Outstanding Deposit

you put money in the bank but the bank has not added the money to your balance yet.  This can be due to timing.

What bills should be paid by automatic payments online?

mortgage, car, credit card, streaming services, electric bill, cable bill, WIFI, insurance

What is a strategy you can use to avoid going under your balance?

set mobile alerts

How can you figure out how long it will take your money to double?

72/interest rate

monthly fee

avoid whenever possible - they charge you this just so you can have an account with them

Overdraft Fee

(Insufficient funds when trying to pay) - when you don't have enough money in your account to cover a payment.  The bank covers it for you (pays the bill) and then charges you a fee for doing that.

ATM Fees

when you use a machine that does not belong to your bank to get money

Check Orders

buy checks for your account so you can write them when you need to pay someone.

Stop Payment Fees

you wrote a check but now you don't want that person to get the money you can tell the bank not to allow the check to be cashed

Replacement of debit card

you lose your card and need a new one.  Usually around $5-7 to replace the card.

Falling below the minimum balance

bank requires you to have a certain balance in your account (example $500) and your balance falls below that amount

How should you split your paycheck?

50% for needs, 30% for wants 20% for saving

FDIC

insurance by the government up to $250,000 protection if a bank goes under (fails and shuts their doors)

Why do we need a checking account?

• keeps your money safe and insured (FDIC and NCUA up to $250,000)

• Makes paying bills, shopping, and managing money easier

• gives access to debit cards, ATMs, online banking

• creates paper trail for proof of payments

• easier to get paid (Direct deposit)

What is overdraft protection?

covers you if you spend more than you have. Bank lends you the difference (often with a fee). Prevents bounced payments

How can you avoid overdraft fees?

check your balance regularly

What is a cashier’s check?

bank-insured check guaranteed by the bank’s funds. Used for large or secure payment (Car, rent, deposits). Safer for sellers than personal check (because bank is telling the recipient the money is there)

What are some ways you can get money OUT of your checking account?

• debit card purchases

• ATM withdrawals

• writing checks

• online/mobile transfers

• bill payments

• withdrawals through bank teller

• Venmo/third party apps

What are some ways you can get money INTO your checking account?

• direct deposit from job

• mobile check deposit

• ATM or branch (through teller) deposits

• transfers from another account

• patients through apps (Venmo, PayPal)

What are two advantages of having an account at a local community bank versus a national bank?

• Community banks typically have lower fees and charges when compared to a national bank

• community banks typically give back and support the local community

What does the FDIC do when you deposit your money at a community/online bank?

it insures your money up to $250,000

What questions should you ask before opening an account at any bank or credit union?

• what type of fees are there

• is there a fee for using the ATM? if so how much

• is there a minimum balance requirement

• do you offer online banking or mobile banking

What is the memo line on a check for?

it tells what the check is for, but it’s optional

What must you do before depositing a check?

sign the back if you are the recipient

What is the number on the bottom left of a check?

the ABA number

What is the number in the middle of the bottom on a check?

your account number

NSF/Overdraft Fee

• charged when checks or electronic payments cause your account to go below 0

• only charged if no other account protections are in place

• all transactions will be declined

What is the average NSF fee?

about $25

Overdraft Protection

• a service that automatically transfers money from a linked savings account when a transaction would cause your account balance to go below 0

• transactions are approved and money is transferred into your linked account

• there is sometimes a fee but will typically be smaller than other options

Overdraft Coverage

• charged when any transaction causes your checking account balance to go below 0

• transaction to be approved and your account will go into negative territory

• many banks have a limit on the number of these transactions that you can be charged per day

• you can opt out of this outcome

What is the average overdraft coverage fee per transaction?

about $30

Do you ever HAVE to pay overdraft fees?

no, as long as you pay close attention to your account balance and don’t go below 0

Why does it make sense to start saving/investing now?

money gains value and interest over time, so the longer the money spends in the bank the more it can grow without you having to do anything

What is the difference between saving and investing?

saving is short term and not risky, while investing is long-term and risky

Low risk = _______

low return

Passbook Savings

a traditional account where transactions are recorded in a physical booklet. Very safe but usually pays lower interest

Statement Account

transactions are recorded by the bank and mailed/emailed to you monthly as a statement. Common for regular savings

Interest Earning Account

works like a checking account (writing checks, debit card) but pays a small amount of interest on the balance

Money Market Deposit Accounts

higher interest, pays better than regular savings. But has limits, often requires a minimum balance and limits monthly checks

Certificate of Deposit (CD)

locked-in, meaning you despot money for a fixed time. Early withdrawal incurs a fee. Offers the highest savings and interest rates

What does the rule of 72 tell you?

how long it takes for your money to double

What is the simple interest formula?

P x r x t (initial amount x interest rate x time)

What is the compound interest formula?

P(1 + r)^t

What strategy can help you save the most money?

as soon as you receive your paycheck, put a fixed amount or percentage of your money directly into your savings

What is the benefit of automating your savings account contributions?

your money will be transferred automatically and guarantees you will be contributing to your savings

What does it mean to “pay yourself first”?

deposit money into your savings account before spending on anything else